Bankruptcy Basics: Your Rights and Options

Financial hardship can happen for many reasons: job loss, medical bills, divorce, rising costs, or an unexpected business disruption. Bankruptcy is a federal legal process designed to give qualified individuals and businesses a structured path to address overwhelming debt while protecting certain rights and property.

This guide explains the fundamentals of bankruptcy, the options most individuals consider, and the protections that may be available under federal law and New York exemptions.

What Bankruptcy Is, and What It Is Not

Bankruptcy is a set of federal laws that can help debtors:

• Stop most collection activity through an automatic stay 
• Address unsecured debt (such as credit cards and many medical bills) 
• Catch up on certain secured debts (such as mortgage arrears) through a court-approved repayment plan 
• Obtain a discharge of qualifying debts in many cases 

Bankruptcy is not a one-size-fits-all solution. Some debts are not dischargeable, and some financial problems are better addressed through negotiation, restructuring, or other non-bankruptcy options depending on the facts.

Your Key Rights in Bankruptcy

The Automatic Stay: Immediate protection from most collection actions

When a bankruptcy case is filed, an automatic stay generally stops collection activity such as:

• Collection calls and letters 
• Wage garnishments (in most situations) 
• Lawsuits and certain judgments enforcement 
• Foreclosure and repossession activity (often temporarily, and subject to exceptions)
  

The automatic stay arises by operation of law, although not every action is stayed and certain exceptions apply.

The Right to Protect Property Through Exemptions

Exemptions are laws that can allow you to protect certain property in bankruptcy. In New York, exemption planning is often central to the decision between Chapter 7 and Chapter 13.

For example, New York’s homestead exemption can protect a portion of home equity, and the amount varies by county.

The Right to a Fresh Start Through Discharge (When Available)

A bankruptcy discharge can eliminate personal liability for certain debts, but it is not absolute. Some debts may not be discharged, and in some situations creditors must ask the court to determine whether a debt is excluded from discharge.

Bankruptcy Options for Individuals

Chapter 7: Liquidation (Often the fastest option)

Chapter 7 is commonly used when income is limited and a debtor qualifies under the rules (including the “means test” analysis). In many Chapter 7 cases, debtors can keep exempt property and receive a discharge of qualifying unsecured debts.

Common goals in Chapter 7

• Discharge qualifying unsecured debt 
• Stop collection activity 
• Obtain a faster reset than long-term repayment plans
  

Key considerations

• Whether income qualifies under the means test framework (based on household income and other factors) 
• Whether assets can be protected through exemptions (New York or federal exemptions may apply depending on eligibility rules)
  

Chapter 13: Repayment plan (Often used to protect assets or catch up on secured debt)

Chapter 13 is often appropriate for individuals with regular income who can repay all or part of their debts over three to five years under a court-approved plan.

Common goals in Chapter 13

• Catch up on mortgage arrears over time 
• Address car loan arrears and other secured debt issues 
• Protect non-exempt equity that might be at risk in Chapter 7 
• Create a structured payment plan while maintaining ongoing obligations
  

Chapter 13 eligibility debt limits (important in planning)
 For cases filed between April 1, 2025 and March 31, 2028, Chapter 13 debt limits are $1,580,125 secured and $526,700 unsecured.

What Debts Are Usually Discharged, and What Debts Often Are Not

Debts that are often dischargeable (depending on the facts)

• Credit card debt 
• Many medical bills 
• Certain personal loans and unsecured obligations
  

Debts that are commonly not dischargeable or require additional legal process

• Many domestic support obligations (child support and certain spousal support) 
• Certain taxes 
• Many student loans (generally not discharged absent an “undue hardship” determination and related process) 
• Debts involving fraud, willful injury, or similar issues (often require court determination)
  

New York Exemptions: Why Local Details Matter

Exemptions determine what property may be protected. For many New York filers, the homestead exemption is a central issue. New York homestead exemption amounts vary by county and can be significantly higher than the federal homestead exemption in many cases.

Because exemptions, asset values, and lien issues can change the analysis, it is important to evaluate:

• How property is titled 
• Equity in real estate and vehicles 
• Retirement accounts and protected benefits 
• Judgment liens and other secured claims
  

Alternatives to Bankruptcy: Options That May Be Worth Evaluating

Bankruptcy is one tool. Depending on the situation, alternatives may include:

• Negotiating payment plans or settlements 
• Addressing interest rates and hardship programs 
• Debt management plans through reputable counseling channels 
• Loan modification or mortgage loss mitigation strategies 
• Strategic restructuring for small businesses (including non-bankruptcy restructuring)
  

The best approach depends on income stability, asset protection goals, the nature of the debt, and time-sensitive risks (foreclosure, repossession, lawsuits).

What to Expect: A High-Level Bankruptcy Process Overview

While each case is different, most bankruptcy matters include:

1. A financial review and strategy selection (Chapter 7 vs. Chapter 13 vs. alternatives) 
2. Collection of documents and accurate disclosure of assets, debts, income, and expenses 
3. Filing the petition and related schedules (which triggers the automatic stay) 
4. A required meeting of creditors and related trustee review (process details vary by chapter) 
5. For Chapter 13, plan confirmation and plan payments over time 
6. Completion requirements and discharge, when eligible
   

When to Contact a Bankruptcy Attorney

You should consider speaking with counsel if you are facing:

• Wage garnishment, bank restraint, or aggressive collection 
• Foreclosure or repossession risk 
• A lawsuit, judgment, or creditor levy 
• Overwhelming unsecured debt with no viable payoff timeline 
• A need to protect home equity, a vehicle, or other priority assets 
• Complex debt, tax issues, or business-related obligations

Frequently Asked Questions

Will I lose my house if I file bankruptcy?

Not necessarily. Many cases turn on equity, exemptions, mortgage status, and whether Chapter 7 or Chapter 13 is the better fit. New York’s homestead exemption (which varies by county) is often a critical part of this analysis.

Can bankruptcy stop foreclosure or repossession?

Bankruptcy filing generally triggers the automatic stay, which can temporarily stop many collection actions, including foreclosure activity, subject to exceptions and court rules. Chapter 13 may also provide a structured way to catch up on arrears over time.

Do I qualify for Chapter 7?

Qualification depends on multiple factors, including income and the means test framework. The U.S. Trustee Program publishes median income tables used in means testing.

Can I file Chapter 13 if my debt is high?

Chapter 13 eligibility includes debt limits. For cases filed between April 1, 2025 and March 31, 2028, limits are $1,580,125 secured and $526,700 unsecured.

Are student loans discharged in bankruptcy?

Student loans generally are not discharged absent an “undue hardship” determination and related court process.

How O’Connell & Aronowitz Can Help

O’Connell & Aronowitz helps clients evaluate bankruptcy and non-bankruptcy options with a focus on practical outcomes: protecting what matters, reducing financial pressure, and establishing a path forward. We work with individuals and families to assess eligibility, exemption planning, and the most appropriate chapter or alternative strategy based on the facts.

If you are considering bankruptcy or need immediate protection from collection activity, contact O’Connell & Aronowitz to schedule a consultation at 518-462-5601 or contact us online here.

Disclaimer

This guide is provided for general informational purposes only and does not constitute legal advice. Reading this guide does not create an attorney-client relationship. Bankruptcy outcomes depend on the specific facts of each matter, and laws and thresholds may change. You should consult qualified counsel regarding your situation. For legal guidance on bankruptcy, debt relief, and creditor protection strategies, contact O’Connell & Aronowitz.